RBS takes US$5bn charge in new blow to turnaround hopes

AP, LONDON

Wed, Jan 29, 2014 - Page 15

Hopes for a turnaround at the nationalized Royal Bank of Scotland (RBS) took a hit on Monday when the lender said it set aside ￡3 billion (US$5 billion) more to cover US legal costs and customer compensation claims in Britain.

The British bank, which is 80 percent-owned by taxpayers, announced the decision in a statement issued a month ahead of its full-year results. At the time of the financial crisis, the bank was involved in a number of businesses that have since come under scrutiny by regulators, chief executive Ross McEwan said.

“The scale of the bad decisions during that period means that some problems are still just emerging,” he said in a statement. “Billions of pounds have been spent to resolve conduct and litigation issues in recent years. Costs on this scale were not predicted by anyone when RBS was rescued in 2008.”

The UK government rescued RBS in 2008 with a ￡45 billion capital injection after former swashbuckling CEO Fred Goodwin brought the bank to near-collapse with an aggressive global expansion strategy that included the ill-fated purchase of Dutch lender ABN Amro.

Yet the bank’s problems did not end with the rescue and both McEwan and his immediate predecessor, Stephen Hester, have tried desperately to unravel years of mismanagement and excess.

UK Treasury Select Committee Chairman Andrew Tyrie said the bank and its customers continue to pay a heavy price for past misconduct.

“There is little prospect that the money needed to pay these fines can covered by claw-back of either vested remuneration or deferred bonuses from those responsible,” Tyrie said. “There should be in [the] future.”

The amount RBS said it has set aside on Monday included ￡1.9 billion to cover various claims related to mortgage-backed securities and securities-related litigation in the US.

The decision comes after other banks settled to pay for similar issues.

Last year, JPMorgan Chase paid a staggering US$13 billion in fines for selling risky mortgage bonds that it knew might fail to investors before the crisis.

Besides the mortgage-backed securities measure, RBS allocated ￡465 million to compensate customers to whom it had improperly sold payment protection insurance.

It set aside another provision of ￡500 million for interest rate hedging products.

“After five years of hard work and tough choices, the path ahead for RBS is much clearer,” McEwan said.

“We have restored our fundamental soundness and have the financial strength to deal with issues like this. We will now become a much simpler, more effective bank for our customers and shareholders,” he added.

McEwan had already said he would not take a bonus for last year or this year, while the bank on Monday said that eight other executives would also not be taking their bonuses.